[Federal Register Volume 89, Number 164 (Friday, August 23, 2024)]
[Rules and Regulations]
[Pages 68086-68090]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-18620]


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CONSUMER FINANCIAL PROTECTION BUREAU

12 CFR Part 1026


Truth in Lending (Regulation Z); Consumer Protections for Home 
Sales Financed Under Contracts for Deed

AGENCY: Consumer Financial Protection Bureau.

ACTION: Advisory opinion.

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SUMMARY: This advisory opinion affirms the current applicability of 
consumer protections and creditor obligations under the Truth in 
Lending Act (TILA) and its implementing Regulation Z to transactions in 
which a consumer purchases a home under a ``contract for deed.'' When a 
creditor sells a home to a buyer under a contract for deed, that 
transaction will generally meet TILA and Regulation Z's definition of 
credit. Where the transaction is secured by the buyer's dwelling, the 
buyer will also generally be entitled to the protections associated 
with residential mortgage loans under TILA.

DATES: This advisory opinion is applicable as of August 23, 2024.

FOR FURTHER INFORMATION CONTACT: George Karithanom, Regulatory 
Implementation & Guidance Program Analyst, Office of Regulations, at 
202-435-7700 or at: https://reginquiries.consumerfinance.gov/. If you 
require this document in an alternative electronic format, please 
contact [email protected].

SUPPLEMENTARY INFORMATION: The Consumer Financial Protection Bureau 
(CFPB) is issuing this advisory opinion through the procedures for its 
Advisory Opinions Policy.\1\ Refer to those procedures for more 
information.
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    \1\ 85 FR 77987 (Dec. 3, 2020).
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I. Advisory Opinion

A. Background

    The CFPB is issuing this advisory opinion to affirm the 
applicability of certain consumer protections under the Truth in 
Lending Act (TILA) and its implementing Regulation Z to transactions in 
which a consumer purchases a home under a ``contract for deed.'' 
Broadly speaking, TILA protects consumers engaged in credit 
transactions by requiring creditors to disclose information about the 
costs and terms of the credit, and, where the credit is secured by the 
consumer's dwelling, provides additional protections. The CFPB has 
previously identified certain contracts for deed as consumer credit 
under the Consumer Financial Protection Act (CFPA),\2\ which uses a 
substantially similar definition of credit. Consistent with that 
earlier application of the CFPA, this advisory opinion clarifies how 
the CFPB understands the current application of TILA and Regulation Z 
to contracts for deed.
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    \2\ Consent Order, In re Harbour Portfolio Advisors et al., CFPB 
No. 2020-BCFP-0004 (June 23, 2020), ] 4.
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1. Contract for Deed Overview and History
    A contract for deed is a type of home loan, alternatively called a 
``land contract,'' ``land installment contract,'' ``land sales 
contract,'' ``bond for deed,''

[[Page 68087]]

``agreement for deed,'' or ``buying on contract.'' Home loans commonly 
referred to as contracts for deed, which this advisory opinion refers 
to as ``contracts for deed,'' tend to have a few key features. In a 
typical contract for deed, a homebuyer agrees to make periodic payments 
to the home seller, and the seller retains the deed to the property 
until the loan is fully repaid.\3\ Loan terms vary but often range from 
5 to 30 years and may include balloon payments. Properties are often 
purchased ``as is,'' without inspection or appraisal, and may have 
property condition issues that prevent them from being suitable for 
rental or qualifying for mainstream mortgage financing. Additionally, 
because the sales price of the home may not be tied to appraisal or 
other typical market measures, the sales price may be inflated. During 
the repayment period, the buyer has the exclusive right to occupy the 
home and often assumes many of the responsibilities of homeownership, 
including paying for taxes, insurance, home maintenance, and 
repairs.\4\
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    \3\ More complex arrangements exist, such as those where the 
buyer pays the seller's agent.
    \4\ See Joint Center for Housing Studies of Harvard University, 
The American Dream or Just an Illusion? Understanding Land Contract 
Trends in the Midwest Pre- and Post-Crisis (Aug. 2019), https://www.jchsharvard.edu/sites/default/files/media/imp/harvard_jchs_housing_tenure_symposium_carpenter_george_nelson.pdf.
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    Another common feature is a forfeiture clause that can be triggered 
if the borrower fails to meet the terms of the contract. In these 
scenarios, the contract is canceled, the seller retakes possession of 
the property, and the buyer generally forfeits their entire 
investment--including their downpayment, principal payments, and any 
increase in home equity, including home equity that the buyer generated 
by making property improvements.\5\ In some contracts, a single missed 
payment is enough to trigger these losses. Forfeiture clauses can also 
be triggered by breaches unrelated to payment status, such as when a 
borrower fails to pay taxes, is unable to obtain or maintain insurance, 
or does not make improvements to the property within a specified 
timeframe.\6\ While some states restrict forfeiture and require 
foreclosure, others have allowed ``virtually unrestricted use of 
forfeiture clauses.'' \7\
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    \5\ Id.
    \6\ Id.
    \7\ See The Pew Charitable Trusts, Summary of State Land 
Contract Statutes (Apr. 30, 2021), https://www.pewtrusts.org/-/media/assets/2022/02/summary-of-state-land-contract-statutes.pdf.
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2. TILA Legislative History
    Congress first enacted TILA, 15 U.S.C. 1601 et seq., in 1968 
intending ``to assure a meaningful disclosure of credit terms'' and 
``avoid the uninformed use of credit, and to protect the consumer 
against inaccurate and unfair credit billing and credit card 
practices.'' \8\ As industry commenters noted at the time, TILA's 
disclosure regime could help ``a prospective mortgage borrower [ ] 
consider the relative costs of credit offered by . . . various purchase 
arrangements, for example, contract for deed or an FHA-insured 
mortgage'' when purchasing a home.\9\
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    \8\ 15 U.S.C. 1601.
    \9\ Truth in Lending Act: Hearings Before the Subcomm. on 
Financial Institutions of the S. Comm. on Banking and Currency, 90th 
Cong., 1st Sess. (Apr. 18, 1967) (testimony of Darrel M. Holt, 
Mortgage Bankers Association of America).
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    In 1994, Congress amended TILA by enacting the Home Ownership and 
Equity Protection Act (HOEPA) to require special disclosures and 
restrictions for high-cost mortgage loans secured by the consumer's 
principal dwelling.\10\ In the wake of the 2008 financial crisis, in 
which widespread mortgage loan defaults produced a wave of foreclosures 
and systemic economic instability, Congress passed the Dodd-Frank Wall 
Street Reform and Consumer Protection Act (Dodd-Frank Act) which added 
additional protections to TILA, as well as establishing the CFPB under 
the Consumer Financial Protection Act.\11\
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    \10\ 15 U.S.C. 1602(bb), 1639.
    \11\ Public Law 111-203, 124 Stat. 1376 (2010).
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    New TILA sections added by the Dodd-Frank Act required creditors to 
make good-faith assessments of consumers' ability to repay loans 
secured by their dwellings, imposed new standards on mortgage 
disclosures, and prohibited certain practices, including mandatory 
arbitration clauses and waivers of Federal causes of action in consumer 
credit transactions secured by a dwelling.\12\ The Dodd-Frank Act also 
expanded the scope of HOEPA coverage and protections. In the Senate 
Report accompanying the Dodd-Frank Act, Congress cited the 
``proliferation of poorly underwritten mortgages with abusive terms,'' 
made ``with little or no regard for a borrower's understanding of the 
terms [ ], or their ability to repay,'' as precipitators of the 
financial crisis and motivation for the Act's financial reforms.\13\ 
Congress explained that, because of failures in consumer protection, 
``millions of Americans have lost their homes,'' \14\ and quoted expert 
testimony that ``a plague of abusive and unaffordable mortgages and 
exploitative credit cards . . . cost millions of responsible consumers 
their homes, their savings, and their dignity.'' \15\
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    \12\ Sections 1411, 1412, and 1414 of the Dodd-Frank Act, 
codified at 15 U.S.C. 1639c; sections 1418, 1420, 1463, and 1464 of 
the Dodd-Frank Act, codified at 12 U.S.C. 2605; 15 U.S.C. 1638, 
1638a, 1639f, and 1639g. Other protections apply to servicing 
practices, such as prompt payment processing, no pyramiding of late 
fees, and loan originator qualification requirements. See 12 CFR 
1026.36(c), (d), (f).
    \13\ S. Rept. No. 176, 111th Cong. (2010), at 11, 12.
    \14\ Id. at 9.
    \15\ Id., n.19 (quoting Testimony of Michael Barr, Assistant 
Secretary of the Treasury for Financial Institutions, to the Senate 
Committee on Banking, Housing, and Urban Affairs, July 14, 2009).
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B. Legal Analysis

    1. Because contracts for deed allow buyers to acquire property and 
defer the payment, contracts for deed are generally ``credit'' under 
TILA and Regulation Z.
a. Credit Under TILA
    TILA's definition of ``credit'' includes the typical contract for 
deed. TILA and Regulation Z define credit as ``the right granted [by a 
creditor to a debtor] to defer payment of debt or to incur debt and 
defer its payment.'' \16\ TILA and Regulation Z do not define debt. 
Used infrequently in the statute and the regulation, ``debt'' for the 
most part appears only in the definition of ``credit.'' As the CFPB has 
noted elsewhere,\17\ in the ordinary usage, debt means simply 
``something owed,'' without any obvious limitation.\18\ Legal 
dictionaries, including those dating to the enactment of TILA, 
similarly describe debt as a ``sum of money due by certain and express 
agreement'' or ``a financial liability or obligation owed by one 
person, the debtor, to another, the creditor.'' \19\ This understanding 
of ``debt,'' as any obligation by a consumer to pay another party, 
applies to contracts for deed in a straightforward manner.
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    \16\ 15 U.S.C. 1602(f), 12 CFR 1026.2(a)(14). Whether a seller 
is a ``creditor'' under TILA and Regulation Z depends on several 
factors, discussed below, at section I.B.3.
    \17\ Proposed rule, Truth in Lending (Regulation Z); Consumer 
Credit Offered to Borrowers in Advance of Expected Receipt of 
Compensation for Work, 89 FR 61358 (July 31, 2024), https://files.consumerfinance.gov/f/documents/cfpb_paycheck-advance-marketplace_proposed-interpretive-rule_2024-07.pdf.
    \18\ Debt, Merriam-Webster, https://www.merriam-webster.com/dictionary/debt (last updated Jan. 30, 2024).
    \19\ Debt, Black's Law Dictionary (4th ed. 1968) (defining debt 
as ``[a] sum of money due by certain and express agreement; as by 
bond for a determinate sum, a bill or note, a special bargain, or a 
rent reserved on a lease, where the amount is fixed and specific, 
and does not depend upon any subsequent valuation to settle it''); 
Debt, Wex, https://www.law.cornell.edu/wex/debt (last updated Sept. 
2021).

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[[Page 68088]]

    In a typical contract-for-deed transaction, as discussed above, a 
debt is created by the buyer receiving exclusive possession of the 
property, along with certain ownership obligations, at the outset of 
the contract in exchange for the obligation to repay the agreed-upon 
value of that property over time.\20\ Courts applying common law 
doctrines have broadly recognized these property-related rights and 
obligations under the contract for deed as constituting a grant of 
equitable title to the buyer.\21\ In exchange for these rights granted 
in the property, the purchaser agrees to complete payment on a deferred 
basis. The contractual obligation to repay the agreed-upon value of the 
property according to the terms of the contract, therefore, constitutes 
a debt under TILA. From the face of the typical contract for deed, it 
will be clear that the seller has granted to the purchaser ``the right 
. . . to defer'' payment of this debt.
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    \20\ This is distinct from lease-based rental arrangements, even 
those involving an eventual right to purchase (often called ``lease-
to-own''), because the lessee's legal interest, privileges, and 
obligations in the property are more limited in scope, while the 
lessor retains both ownership obligations and title. Many lease-to-
own products also require a separate agreement to effectuate a 
purchase option, allowing for complete performance of the original 
contract without necessarily transferring property ownership. In a 
typical contract for deed, complete performance includes the 
transfer of full legal ownership. Regardless of how the arrangement 
is styled, courts have generally looked to the function of the 
transaction and intent of the parties to determine its nature. See, 
e.g., Gilliland v. Port Auth. of City of St. Paul, 270 NW2d 743, 747 
(Minn. 1978) (``To break the transaction into two separate parts, a 
sale and a lease, would be to distort its real nature and to ignore 
the intent of the parties.''); In re Montgomery Ward, L.L.C., 469 
B.R. 522, 529 (Bankr. D. Del. 2012) (``Courts must analyze the 
`economic reality' of the agreement at issue to determine its true 
nature.''). Depending on their terms, such leases, as well as 
contracts for deed, may be considered ``credit sales'' covered under 
TILA and Regulation Z. 15 U.S.C. 1602(h); 12 CFR 1026.2(a)(16).
    \21\ In re Restivo Auto Body, Inc., 772 F.3d 168, 177 (4th Cir. 
2014) (``upon contracting to buy land, `in equity the vendee becomes 
the owner of the land, the vendor of the purchase money' '') 
(internal citation omitted); Hauben v. Harmon, 605 F.2d 920, 925 
(5th Cir. 1979) (``Under the doctrine of equitable conversion a 
purchaser of realty becomes seized of beneficial title to the 
property upon execution of the contract of sale.''); In re 
Blanchard, 819 F.3d 981, 985 (7th Cir. 2016) (``Under Wisconsin's 
doctrine of equitable conversion, a land contract buyer obtains 
equitable title to the property, which includes `all the incidents 
of a real ownership.' '') (internal citation omitted); Redevelopment 
Agency of City of Stockton v. BNSF Ry. Co., 643 F.3d 668, 678 (9th 
Cir. 2011) (``The doctrine of equitable conversion generally 
provides that when a valid executory land sales contract is entered 
into, the purchaser becomes the equitable owner of the land.''); In 
re Hodes, 402 F.3d 1005, 1011 (10th Cir. 2005); SMS Assocs. v. Clay, 
868 F. Supp. 337, 340 (D.D.C. 1994), aff'd, 70 F.3d 638 (D.C. Cir. 
1995). Even where some courts have declined to view a contract for 
deed as transferring equitable title, they nonetheless acknowledge 
that the purchaser has received possession in exchange for the 
promise of payment. See, e.g., In re Wall Tire Distributors, Inc., 
110 B.R. 614, 618 (Bankr. M.D. Ga. 1990).
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b. Closed-End Credit
    Where the property acquired under a contract for deed is purchased 
by a consumer primarily for personal, family, or household purposes, as 
it generally is when a purchaser buys a home using a contract for deed, 
the transaction is ``consumer credit'' under Regulation Z.\22\ Any 
consumer credit that is not open-end credit under Regulation Z is 
considered ``closed-end credit.'' \23\ Because the typical contract for 
deed is contemplated as a one-time transaction, it is not open-end 
credit.\24\ Thus, when a buyer purchases a personal dwelling from a 
creditor under a contract for deed, that transaction typically meets 
the definition of closed-end credit under TILA and Regulation Z, and is 
subject to the applicable requirements of subpart C of Regulation Z.
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    \22\ 12 CFR 1026.2(a)(12).
    \23\ 12 CFR 1026.2(a)(10).
    \24\ 12 CFR 1026.2(a)(20).
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c. Consistency With Other Laws
    In 2020, the CFPB settled with an entity selling property under 
contracts for deed, requiring penalties for violations of the CFPA.\25\ 
In doing so, the CFPB applied the CFPA's substantially similar 
definition of credit, which is ``the right granted by a person to a 
consumer to defer payment of a debt, incur debt and defer its payment, 
or purchase property or services and defer payment for such purchase.'' 
\26\ This advisory opinion therefore affirms the consistency with which 
the CFPB views and applies these statutory definitions, when presented 
with similar contexts. Although this advisory opinion does not analyze 
the application of other laws, the CFPB expects that under other 
consumer financial laws with similar definitions of credit, the same 
considerations will apply.\27\
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    \25\ Consent Order, In re Harbour Portfolio Advisors et al., 
CFPB No. 2020-BCFP-0004 (June 23, 2020), ] 4.
    \26\ 12 U.S.C. 5481(7). A court validated the CFPB's authority 
to investigate the entity's contracts for deed as possible credit 
under the CFPA, noting that the transactions may be credit because 
they ``obligate the purchaser to pay a principal sum plus interest 
through deferred monthly payments.'' CFPB v. Harbour Portfolio 
Advisors, No. 16-014183, 2017 WL 631914, at *3 (E.D. Mich. Feb. 16, 
2017). The court further characterized an acceleration clause that 
``gives the seller the option to demand the full purchase price once 
the purchaser misses a payment'' as ``strongly suggest[ing] that 
Respondents are supplying `credit' . . . .'' Id.
    \27\ See, e.g., 15 U.S.C. 1691a(d) (defining ``credit'' under 
the Equal Credit Opportunity Act); 12 CFR pt. 1002 supp. I para. 
2(j)-1 (``Regulation B covers a wider range of credit transactions 
than Regulation Z.'').
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    2. Contracts for deed secured by a dwelling, generally will be 
``residential mortgage loans'' under TILA and Regulation Z.
    Several provisions of TILA and Regulation Z apply specifically to 
credit transactions secured by the consumer's dwelling or by real 
property.\28\ As discussed above, Congress amended TILA through the 
Dodd-Frank Act with the recognition that, when consumers commit to 
loans secured by possession of their homes, the stakes are particularly 
high.\29\ It added to TILA specific protections that apply to 
``residential mortgage loans.'' Many States define ``mortgages'' 
separately from their definitions for contracts for deed, with distinct 
requirements for each. However, in TILA Congress defined ``residential 
mortgage loan'' to include ``any consumer credit transaction that is 
secured by a mortgage, deed of trust, or other equivalent consensual 
security interest on a dwelling or on residential real property that 
includes a dwelling, other than a[n open-end] consumer credit 
transaction . . . .'' \30\ Thus, the relevant consideration for 
determining whether contracts for deed are ``residential mortgage 
loans'' under TILA is not whether State law specifically regards 
contracts for deed as ``mortgages,'' but only whether the contract for 
deed is secured by a mortgage, deed of trust, or other equivalent 
consensual security interest on a dwelling or on residential real 
property that includes a dwelling. Additional protections under 
Regulation Z apply to ``any consumer credit transaction secured'' by 
``a dwelling,'' \31\ by ``the consumer's principal dwelling,'' \32\ or 
by ``real property.'' \33\
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    \28\ The CFPA similarly has provisions specifically addressing 
loans secured by real estate. See, e.g., 12 U.S.C. 5514(a)(1)(A) 
(providing supervisory authority over any covered person who 
originates consumer loans ``secured by real estate''). This advisory 
opinion does not assess the applicability of such provisions beyond 
TILA, but the CFPB expects to apply such definitions consistently 
across Federal consumer financial laws to the extent appropriate.
    \29\ See supra, text accompanying notes 13-15.
    \30\ 15 U.S.C. 1602(dd)(5).
    \31\ E.g., 12 CFR 1026.43(a). Regulation Z defines a 
``dwelling'' as ``a residential structure that contains one to four 
units, whether or not that structure is attached to real property.'' 
12 CFR 1026.2(a)(19).
    \32\ E.g., 12 CFR 1026.32(a)(1).
    \33\ E.g., 12 CFR 1026.19(e). Under Regulation Z, a ``dwelling'' 
does not need to be attached to real property. 12 CFR 1026.2(a)(19). 
Thus, there may be instances where, depending on the transaction, a 
contract for deed is secured by a dwelling, but not real property, 
or by real property without a dwelling.
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    Regulation Z defines a ``security interest'' as ``an interest in 
property that

[[Page 68089]]

secures performance of a consumer credit obligation and that is 
recognized by State or Federal law.'' \34\ While State and Federal law 
regarding secured transactions and contracts for deed will vary, the 
CFPB expects that this definition would be satisfied in many or most 
cases. As a matter of general usage, security is the ``[c]ollateral 
given or pledged to guarantee the fulfillment of an obligation.'' \35\ 
As described earlier, in a typical contract for deed, the seller 
retains legal title to the subject property, which generally allows the 
seller to retake possession of the property should the purchaser 
default on the payment agreement. In function, this retention of title 
serves to ensure that the purchaser, who already has exclusive 
possession of the property, fulfills the payment obligations.\36\ The 
CFPB notes that this structure is functionally equivalent to common 
definitions of ``mortgage,'' \37\ and is aware of State laws that 
expressly consider such transactions to be mortgages.\38\
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    \34\ 12 CFR 1026.2(a)(25).
    \35\ Security, Black's Law Dictionary (11th ed. 2019).
    \36\ See Restatement (Third) of Property (Mortgages) sec. 3.4 
(1997) (``A contract for deed is a contract for the purchase and 
sale of real estate under which the purchaser acquires the immediate 
right to possession of the real estate and the vendor defer delivery 
of a deed until a later time to secure all or part of the purchase 
price. A contract for deed creates a mortgage.'').
    \37\ Id. See also Mortgage, Black's Law Dictionary (11th ed. 
2019) (``A conveyance of title to property that is given as security 
for the payment of a debt or the performance of a duty and that will 
become void upon payment or performance according to the stipulated 
terms.''); Restatement (Third) of Property (Mortgages) sec. 1.1 
(1997) (``The function of a mortgage is to employ an interest in 
real estate as security for the performance of some obligation.'').
    \38\ See, e.g., Florida (Fla. Stat. Ann. sec. 697.01); Indiana 
(Ind. Code Ann. sec. 24-4.4-1-301(14)); Oklahoma (Okla. Stat. Ann. 
tit. 16 sec. 11A).
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    The CFPB is additionally aware of many instances nationwide in 
which a seller's retention of legal title to the property has been 
characterized as securing payment of the contract for deed, either by 
State statute \39\ or by courts applying State law and equitable 
principles.\40\ While this advisory opinion does not provide any 
specific interpretation or application of State law, the prevalence of 
similar language across State law and related jurisprudence informs the 
CFPB's expectation that contracts for deed will generally trigger 
Regulation Z's thresholds for mortgage transaction protections based on 
the security interest in the buyer's home. As noted above, this is the 
case whether or not the relevant State or Federal law regards a 
contract for deed generally as a ``mortgage,'' or its equivalent, 
including for the purpose of forfeiture. Similarly, this advisory 
opinion's recognition that contracts for deed are often ``residential 
mortgage loans'' under TILA and Regulation Z does not constitute a 
determination that they are mortgages under State or other Federal 
laws.
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    \39\ See, e.g., Maine (33 M.R.S. sec. 481); Maryland (Md. Real 
Property Code sec. 10-101); Ohio (Ohio Rev. Code Ann. sec. 5313.01).
    \40\ See, e.g., California (Petersen v. Hartell, 40 Cal. 3d 102, 
112, 707 P.2d 232, 239 (1985)); Indiana (Vic's Antiques & Uniques, 
Inc. v. J. Elra Holdingz, LLC, 143 NE3d 300, 305 (Ind. Ct. App. 
2020)); Kentucky (Sebastian v. Floyd, 585 SW2d 381 (Ky. 1979)); 
Michigan (Barker v. Klingler, 302 Mich. 282, 288, 4 NW2d 596, 599 
(1942)); Minnesota (Gagne v. Hoban, 280 Minn. 475, 479, 159 NW2d 
896, 899 (1968)); Nebraska (Mackiewicz v. J.J. & Assocs., 245 Neb. 
568, 573, 514 NW2d 613, 618 (1994)); Oregon (Bedortha v. Sunridge 
Land Co., 312 Or. 307, 311, 822 P.2d 694, 696 (1991)); Pennsylvania 
(Anderson Contracting Co. v. Daugherty, 274 Pa. Super. 13, 21, 417 
A.2d 1227, 1231 (1979)); Washington (Lanzce G. Douglass, Inc. v. 
Dep't of Revenue, 25 Wash. App. 2d 893, 908, 525 P.3d 999, 1007 
(2023)); Wisconsin (Larchmont Holdings, LLC v. N. Shore Servs., LLC, 
292 F. Supp. 3d 833, 848-49 (W.D. Wis. 2017)).
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    3. Creditors selling homes using contracts for deed must comply 
with applicable requirements under TILA and Regulation Z.
a. TILA Creditors
    Contract for deed sellers have important obligations under TILA and 
Regulation Z depending on the nature of the contract for deed and 
whether they are ``creditors.'' \41\ For a transaction to be credit 
covered under TILA, the seller must be a creditor, and whether a seller 
of a contract for deed is a creditor under TILA turns not only on 
whether the seller extends credit, but on the characteristics of the 
credit and frequency with which the seller engages in such 
transactions. First, the credit extended must be either subject to a 
finance charge (such as interest or implied interest) or be payable by 
a written agreement in more than four installments, not including a 
downpayment.\42\ Second, the obligation must be initially payable to 
the person, either on the face of the note or contract, or by agreement 
when there is no note or contract, in order for that person to be 
considered a creditor.\43\ These first two prongs will typically be 
satisfied in a contract-for-deed transaction. Contracts for deed are 
generally set up to require periodic payments during the term of the 
contract--often monthly over the span of years--and thus, require 
repayment of more than four installments.\44\ Contracts for deed also 
generally are established by a written agreement that lists the title 
holder as the payee.
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    \41\ 12 CFR 1026.2(a)(17).
    \42\ 12 CFR 1026.2(a)(17)(i), 1026.4(b).
    \43\ 12 CFR 1026.2(a)(17)(i).
    \44\ Further, even if the contract for deed required less than 
four installments, often the sales price is inflated such that the 
additional profits earned by the seller meet the requirement for 
finance charge under Regulation Z.
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    Third, a creditor is a person that regularly extends credit.\45\ 
For purposes of this requirement, a ``person'' is a natural person or 
an organization, including a corporation, partnership, proprietorship, 
association, cooperative, estate, trust, or government unit.\46\ It may 
include, for example, business arrangements where multiple related 
subsidiaries of a single organization each conduct contract-for-deed 
sales.\47\ Whether a person regularly extends credit will depend on the 
frequency with which the person extends credit, as well as the specific 
nature of those credit transactions. As described below, Regulation Z 
may require as many as 25 transactions or as few as one to be deemed a 
person who regularly extends credit, depending on the type of 
credit.\48\ This will, in turn, determine the seller's legal 
obligations under TILA and Regulation Z.
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    \45\ 12 CFR 1026.2(a)(17).
    \46\ 12 CFR 1026.2(a)(22).
    \47\ See Ward v. Shad, No. 18-CV-01933 (NEB/ECW), 2019 WL 
1084219, at *3 (D. Minn. Mar. 7, 2019).
    \48\ 12 CFR 1026.2(a)(17)(v). The CFPB is aware that some 
contract-for-deed transactions may involve one-time sellers. Where 
such transactions are conducted without a broker and/or do not 
qualify as ``high-cost'' mortgages, such one-time sellers will not 
be creditors under Regulation Z.
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b. TILA Obligations With Contracts for Deed
    In general, when a person extends consumer credit more than 25 
times, or more than 5 times for transactions secured by a dwelling, in 
the preceding calendar year, that person is a creditor under TILA.\49\ 
Thus, in contract-for-deed sales that are not considered secured by a 
dwelling in the relevant jurisdiction, a seller that extends credit 
more than 25 times in the preceding or current calendar year will 
qualify as a TILA creditor, assuming all other elements of the 
``creditor'' definition are met.\50\ In such a case, the contract-for-
deed sale is closed-end credit, subject to TILA and Regulation Z's 
general disclosure requirements regarding the key terms of the loan, 
including the

[[Page 68090]]

amount financed, any finance charge, and the annual percentage 
rate.\51\
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    \49\ Id.
    \50\ Id. (``A person regularly extends consumer credit only if 
it extended credit . . . more than 25 times . . . in the preceding 
calendar year. If a person did not meet these numerical standards in 
the preceding calendar year, the numerical standards shall be 
applied to the current calendar year.'').
    \51\ What specific protections and requirement apply will depend 
on the particular loan. See 15 U.S.C. 1631, 1632; see also 12 CFR 
1026.17-.18.
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    If the contract for deed is considered to be secured by a dwelling 
by the applicable law in the relevant jurisdiction but is not a high-
cost mortgage loan, the seller will qualify as a creditor if the seller 
has extended credit secured by a dwelling more than five times in the 
preceding or current calendar year and all other elements of the 
``creditor'' definition are met.\52\ In such a case, the seller is 
subject to TILA and Regulation Z's general disclosure requirements, as 
well as additional mortgage disclosure requirements.\53\ The 
transaction would generally also qualify as a residential mortgage 
loan.\54\ These transactions are subject to important additional 
requirements, including the requirement that a creditor make a 
reasonable, good faith determination of the consumer's ability to repay 
the loan as well as the prohibition on mandatory arbitration 
clauses.\55\ These transactions may also be subject to rules regarding 
servicing, origination, and fees under TILA.\56\
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    \52\ 12 CFR 1026.2(a)(17)(v) (the person must regularly extend 
credit ``more than 5 times for transactions secured by a 
dwelling'').
    \53\ 15 U.S.C. 1631, 1632; 12 CFR 1026.17-.18; see also 15 
U.S.C. 1638; 12 CFR 1026.19(e), 1026.37, 1026.38. Specific 
disclosure requirements will depend on whether the dwelling-secured 
credit is also secured by real property.
    \54\ 15 U.S.C. 1602(dd)(5).
    \55\ 12 CFR 1026.43(c); 12 CFR 1026.36(h)(1).
    \56\ See generally 12 CFR 1026.36; 15 U.S.C. 1639a, 1639b, 
1639e, 1639c(a)-(h). Some provisions only apply if the loan is 
secured by the consumers' principal dwelling. See, e.g., 12 CFR 
1026.23.
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    If the contract for deed is secured by a dwelling and qualifies as 
a high-cost mortgage,\57\ a seller who extends credit more than once in 
any 12-month period can qualify as a creditor.\58\ A seller who 
originates one or more such credit extensions through a mortgage broker 
can also qualify as a creditor.\59\
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    \57\ A high-cost mortgage is any consumer credit transaction 
secured by a principal dwelling and which meets certain conditions 
as described in 12 CFR 1026.32. 15 U.S.C. 1602(bb), 1639; see also 
12 CFR 1026.31, 1026.32, 1026.34.
    \58\ 12 CFR 1026.2(a)(17)(v).
    \59\ Id.
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    High-cost mortgage transactions will also trigger HOEPA 
requirements and protections, including required disclosures.\60\ 
Specific prohibitions also apply to high-cost mortgages, including a 
prohibition on extending high-cost mortgages without written 
certification that a consumer has obtained counseling, a prohibition on 
opening a plan without regarding a consumer's ability to repay, and 
prohibitions on certain fees, among others.\61\
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    \60\ 12 CFR 1026.32, 1026.34.
    \61\ 12 CFR 1026.34(a)(4) (open-end, high-cost mortgage 
repayment prohibitions), 1026.34(a)(5) (pre-loan counseling 
requirements), 1026.34(a)(7)-(8), 1026.34(a)(10) (requirements and 
prohibitions related to fees).
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Regulatory Matters
    This advisory opinion is an interpretive rule issued under the 
CFPB's authority to interpret TILA and Regulation Z, including under 
section 1022(b)(1) of the Consumer Financial Protection Act of 2010, 
which authorizes guidance as may be necessary or appropriate to enable 
the CFPB to administer and carry out the purposes and objectives of 
Federal consumer financial laws.\62\
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    \62\ 12 U.S.C. 5512(b)(1).
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    By operation of TILA section 130(f), no provision of TILA sections 
130, 108(b), 108(c), 108(e), or section 112 imposing any liability 
applies to any act done or omitted in good faith in conformity with 
this interpretive rule, notwithstanding that after such act or omission 
has occurred, the interpretive rule is amended, rescinded, or 
determined by judicial or other authority to be invalid for any 
reason.\63\
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    \63\ 15 U.S.C. 1640(f).
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    Pursuant to the Congressional Review Act,\64\ the CFPB will submit 
a report containing this advisory opinion and other required 
information to the United States Senate, the United States House of 
Representatives, and the Comptroller General of the United States prior 
to the rule's published effective date. The Office of Information and 
Regulatory Affairs has designated this interpretive rule as not a 
``major rule'' as defined by 5 U.S.C. 804(2).
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    \64\ 5 U.S.C. 801 et seq.
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    The CFPB has determined that this advisory opinion does not impose 
any new or revise any existing recordkeeping, reporting, or disclosure 
requirements on covered entities or members of the public that would be 
collections of information requiring approval by the Office of 
Management and Budget under the Paperwork Reduction Act.\65\
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    \65\ 44 U.S.C. 3501 through 3521.

Rohit Chopra,
Director, Consumer Financial Protection Bureau.
[FR Doc. 2024-18620 Filed 8-22-24; 8:45 am]
BILLING CODE 4810-AM-P